Why America Is Really Worried About Huawei

Concerns about the potential for a national security threat posed by the Chinese networking concern Huawei have been simmering at a low intensity for some time. They burst out into the full glare of publicity today with the release of a report by the House Intelligence Committee saying that Huawei and another Chinese telecom-equipment concern, ZTE, pose sufficient security risks that government agencies should avoid buying their equipment.

There aren’t a lot of specifics to get excited about in the 52-page report, though there are presumably some items of interest in classified portions of the report not released to the public. Huawei has had a difficult time showing to the satisfaction of Western sensibilities that its ties to China’s People’s Liberation Army are severed. If ordered, the thinking goes, Huawei gear could be turned into a valuable espionage tool in the event of war with the U.S. or another country.

The concerns on the part of U.S. lawmakers and the national security establishment are certainly valid, but not for the reasons you think. While Chinese actors have certainly been among the most active when it comes to attacking the networks of large U.S. corporations and stealing their secrets, the U.S. and its allies fret about letting Huawei in because they know from their own experience how imported electronics can be turned into a weapon of espionage and outright sabotage.

Remember that it was intelligence agencies of the U.S., in partnership with Israel, that turned deep knowledge of the numerous variants of Microsoft’s Windows operating system combined with specialized knowledge of industrial control systems to create the Stuxnet worm that damaged the Iranian nuclear research program. Later discoveries included other U.S.-Israeli cyber weapons called Flame and Gauss. Taken together, they amount to evidence that the countries had mounted a less-than-covert military campaign against Iran that could in time have significant unintended consequences.

Prior efforts include a largely forgotten 1982 campaign of electronic sabotage against the natural gas pipeline being built by the Soviet Union that caused so large an explosion that U.S. military forces briefly thought it was an early sign of a nuclear attack. The episode was documented in the book “At the Abyss: An Insider’s History of the Cold War” by Thomas Reed, the late former secretary of the Air Force under President Reagan.

Another incident, this one not as well documented but the subject of a great deal of informed speculation, concerns a 2007 Israeli air strike against what was at the time a suspected nuclear weapons research facility in Syria. A report by the IEEE Spectrum the following year traced reports that a French chip company that supplied the manufacturer of Syrian radar defense gear included a “kill switch” that allowed Israeli bombers to carry out their attack undetected.

So it’s not from out of nowhere that such national security concerns arise about a Chinese telecom concern.

One fundamental failure of all this official hand-wringing is that it neglects the fact that many if not most of the components, with the exception of certain higher-value chips like those from Intel, are manufactured in China. Cisco Systems and Juniper Networks in the U.S., Alcatel-Lucent in France and Ericsson in Sweden, all use Chinese-made parts and carry out at least some portion of the final assembly of their equipment in China.

Huawei certainly hasn’t done itself any favors. While its most senior U.S. employee described the company as “an open book” in a surprisingly short segment on CBS’s “60 Minutes” last night (see the video below), its founder and chief executive, Ren Zhengfei, has never sat for an interview with a Western media outlet. And the precise ownership of the company’s shares are murky. U.S. regulators have prevented it from making certain acquisitions, and in Australia it was blocked from bidding on portions of a project to build a national broadband Internet network.

It hasn’t gotten to be the world’s largest telecom equipment concern for nothing. Wireless phone networks in Africa rely heavily on inexpensive gear sold by Huawei. There are suspicions about its dealings in this area too, though they are mostly economic. Huawei has a history of undercutting Western rivals in competitive bids by as much as 5 percent to 15 percent, raising suspicion that it is the benefactor of state-sponsored subsidies. However, it’s also to the benefit of these rivals to stoke the national security concerns as much as possible.

All told, it’s not as though there is no reason to be suspicious of Huawei, if only because the U.S. and its allies know too well from their own actions in recent years about the potential for electronic espionage, surveillance and warfare.

For its part, Huawei defended itself and attacked the report in a response today (read it in full here). The company said the committee’s report, an 11-month effort, “failed to provide clear information or evidence to substantiate the legitimacy of the Committee’s concerns” and “appears to have been committed to a predetermined outcome” and “employs many rumors and speculations to prove non-existent accusations.”

Without having read the classified portions of the report, which are said to contain more specifics — it mentions only vague instances of “beaconing,” which is intended to mean sending data back to China — it’s hard to argue with Huawei’s position.

Nor is it easy to dismiss the committee’s fears out of hand. Which brings us to the possible unintended result of all this: Might China respond with its own restrictions against U.S. telecom firms like Cisco and Juniper? Is this the first shot of a telecom trade war? We’ll see.

If that happens, expect Cisco to be hurt more than Huawei. U.S. sales account for only 4 percent of its overall revenue, whereas Cisco’s operations in Asia, the Pacific Rim and China account for more than 16 percent, and China was its second fastest-growing market in that region after Japan.

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